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Why are social security retirement benefits so confusing? Don't say it's so financial advisors, financial journalists, financial educators and former Social Security Administration officials can write and sell books. You could say it's so I can write a blog. There, now we're even.
Now selling books, doing book signings, writing blogs, doing interviews, and giving speeches certainly sets you up as an "expert" in some circles. Just check out social security retirement benefits on amazon.com to find out that it appears to be a growing book category probably because all of us baby boomers are staring retirement in the face.
The other day I was reading a question and answer on Fox Business News' website concerning ex-spouse benefits. I'm assuming if you're reading this blog you know about ex-spouse benefits. I'd venture to say in my practice, more that half of eligible ex-spouses have no clue they might be entitled to this kind of benefit.
I was led to this story by Google Alerts "Social Security", which every couple of days sends me a summary of stories on social security. It's a great help to someone like me who is busy giving advice and needs help to find all the stuff that's out there on a particular topic.
Anyway, I'm fusing about the answer which first focuses on the confusing rules that say before full retirement age you don't really get any choices when it comes to social security retirement benefits. I can't imagine most readers giving up after about the second paragraph of the response to the question. I would have answered the question differently.
Taking social security benefits whether on your own work record or your ex-spouse's (or even your current spouse's work record) is a bad decision if you plan to continue working at a modest income or higher job which is a fact stated in the question. I would have started out answering the question by saying you stated you are continuing to work until age 66 your full retirement age. Then forget about any kind of spousal benefits and figure out how your son can do things on his own. Then I would have laid out the rules and the readers could fall asleep before the got to the end of my response.
I know that sounds harsh and cruel to answer the question this way, but social security is an insurance program to partially support needs in retirement and is structured to accomplish just that. The writer of the question wasn't retiring, she was looking for money as a single parent to support what appears to be an able bodied adult child who is unemployed and is going to college.
My opinion is not going to change how social security is structured. I leave that up to the congress. Ok, stop laughing, but that's how we got to this point in the first place. What I can argue for, is more direct answers to these kinds of questions. Secondly, all of us in this arena of educating and giving advice need to do a better job and drop the ignorance and misunderstanding factor much lower that it currently appears.
Thoughts, ideas, suggestions and education from financial adviser Jim Ludwick, Founder of MainStreet Financial Planning, Inc. of Odenton, MD; Washington, DC; New York City, and Santa Barbara, CA
Saturday, April 27, 2013
Why are Soc. Sec. retirement benefits so confusing?
Why are social security retirement benefits so confusing? Don't say it's so financial advisors, financial journalists, financial educators and former Social Security Administration officials can write and sell books. You could say it's so I can write a blog. There, now we're even.
Now selling books, doing book signings, writing blogs, doing interviews, and giving speeches certainly sets you up as an "expert" in some circles. Just check out social security retirement benefits on amazon.com to find out that it appears to be a growing book category probably because all of us baby boomers are staring retirement in the face.
The other day I was reading a question and answer on Fox Business News' website concerning ex-spouse benefits. I'm assuming if you're reading this blog you know about ex-spouse benefits. I'd venture to say in my practice, more that half of eligible ex-spouses have no clue they might be entitled to this kind of benefit.
I was led to this story by Google Alerts "Social Security", which every couple of days sends me a summary of stories on social security. It's a great help to someone like me who is busy giving advice and needs help to find all the stuff that's out there on a particular topic.
Anyway, I'm fusing about the answer which first focuses on the confusing rules that say before full retirement age you don't really get any choices when it comes to social security retirement benefits. I can't imagine most readers giving up after about the second paragraph of the response to the question. I would have answered the question differently.
Taking social security benefits whether on your own work record or your ex-spouse's (or even your current spouse's work record) is a bad decision if you plan to continue working at a modest income or higher job which is a fact stated in the question. I would have started out answering the question by saying you stated you are continuing to work until age 66 your full retirement age. Then forget about any kind of spousal benefits and figure out how your son can do things on his own. Then I would have laid out the rules and the readers could fall asleep before the got to the end of my response.
I know that sounds harsh and cruel to answer the question this way, but social security is an insurance program to partially support needs in retirement and is structured to accomplish just that. The writer of the question wasn't retiring, she was looking for money as a single parent to support what appears to be an able bodied adult child who is unemployed and is going to college.
My opinion is not going to change how social security is structured. I leave that up to the congress. Ok, stop laughing, but that's how we got to this point in the first place. What I can argue for, is more direct answers to these kinds of questions. Secondly, all of us in this arena of educating and giving advice need to do a better job and drop the ignorance and misunderstanding factor much lower that it currently appears.
Tuesday, March 26, 2013
Why Don't Some Retiring Feds Get It?
Why don’t some federal workers nearing retirement in today’s
interest rate environment, get it? It’s
all about the G Fund and bond allocation in a time period approaching increases
(ok, I have no crystal ball) in interest rates after having been kept
artificially low by the Federal Reserve in an effort to simulate the
economy. This is called interest rate
risk.
Recently I was counseling a newly retired federal worker as
he approached his 70th birthday and faced his first required minimum
distribution, having received an announcement from TSP officials of his need to
make some decisions.
Versus an IRA, the TSP is much more limited in taking
withdrawals in retirement. You can take
up to two partial withdrawals and you can take a fixed amount monthly or
annually or just your Required Minimum Distribution (RMD) of about 3.6% of last
year’s balance. IRAs are a lot more
flexible and give retirees a lot of options beyond the same percentage
withdrawal requirement beginning at age 70.5.
But let’s stick with our retired federal worker for the
moment. Faced with blunt demands from
TSP, most workers opt for a rollover to a traditional IRA. Folks who sell products (mutual funds,
stocks, bonds, annuities) like this.
It’s an opportunity to make some money, sometimes at the consumer’s
expense (another story).
We frequently encourage our clients to take a partial
withdrawal from the TSP and leave the remainder in the G Fund. Why?
Because its magic. How is it
magic, you ask? Well, it doesn’t go down in value like normal bond funds when
interest rates rise. Why not?
The G Fund, for federal workers and the military, is
special. It’s based upon an index of
various maturities of Treasuries and that is what depositors in the G Fund
receive each year. It is not subject to
the supply/demand fluctuations like other securities in the rest of the TSP and
in the real world of securities transactions.
Most retirees become more conservative in the allocation to
stocks (equities) as they grow older for two reasons: 1) they don’t want so
much volatility opportunities and 2) they want more assured income that bonds
or cash instruments like CDs or immediate annuities offer to depositors or
owners.
With that assured income stream comes the risk of early
redemption. The market re-prices bonds
and bond funds just like appraisers re-price houses based on previous
sales. CDs suffer an interest penalty
for early withdrawal. So if interest rates have risen since you purchased your
bond or bond fund, then those higher paying bonds are more attractive to new
purchasers. Your bond or bond fund will
have to sell at a discount (read: loss) to meet the same income stream for a
potential purchaser.
The G Fund does not operate the way we just described. It never goes down due to supply/demand. It’s not publically traded. It is a true fixed (annually) income stream.
So Federal workers, after you’ve determined your comfort
level and/or need of exposure to equities, consider using your TSP as your
“fixed income-holding bank” up to the percentage of fixed income you need in
your family asset allocation. If you’ve
been a diligent TSP saver, you’ll have more than enough in your TSP to have
your bond percentage in the G Fund and either retain the rest in equities, or
for more flexibility send the equities to a rollover IRA.
Now this is just a general discussion and not investment
advice. For that you have to pay me.
This concept, however, comes to you courtesy of the TSP. Don’t forget after you bail out of the TSP as
a retiree, you can’t get back in.
Jim Ludwick is the President and founder of MainStreet
Financial Planning, Inc., an hourly fee-only provider of advice on many
financial issues. This is just an educational
story and not individual advice, says my attorney.
Tuesday, March 19, 2013
Andy Made Me Do It
You have probably enjoyed listening to and watching Andy
Rooney. Me too. I’ve read a couple of
his books.
Andy didn’t always understand what was going on, and neither
did I. His introductory sentence, “How
come….” always got my attention. I sensed a fuss was coming. Andy was a person I could identify with as I
ended watching an hour of investigative reporting on 60 minutes. Yes, I miss him.
In my daily life, mostly involving financial services, I
come across a fair amount of products and actions that I just don’t
understand. Human behavior probably fits
in this category too; in fact it either is producing some consequence or is a
reaction to some event or product pitch.
You know what I mean.
I find myself frequently asking myself the question in my
mind, “Why would they do that?” It could
be about someone’s purchase of a financial product or a news report about an
SEC investigation. I suspect others like
me have a similar reaction because of your personal observation or reading the
financial news.
So I’ve decided to change the direction of my blog, Advice
Only Musings, in a fussing sort of direction, much in the style that Andy
Rooney might have done if he was a financial advisor/observer. You may now switch the dial if this does not
appeal to you. However, you do this at
your own risk of missing some important and useful fussing.
I’m not going to fuss in this first edition other than
announce the change of focus as I observe the comings and goings of products,
promotions, styles, and behaviors as reported in the press or other medium
including my personal observation.
If you too ponder these seemingly strange occurrences in our
daily financial lives, I’d appreciate your input and feedback. I appreciate the interaction with clients,
colleagues, acquaintances, and general correspondents as we travel this road of
making our dreams come true, or seeing them dashed on occasion. Maybe a fuss or two will help you avoid the
later.
Until our next engagement, here’s to greater understanding,
as Andy would have it.
Jim
Friday, December 28, 2012
Overcoming Obstacles to Achieving Financial Goals
We are in the goal business. Helping people define, refine
and achieve their financial goals.
What does it take to achieve and surpass financial goals?
1.
It takes willpower. Remember the “protestant work ethic” of
delayed gratification? Starting early
and staying with a plan is a key component to attaining financial success.
2.
It takes resources. Income in excess of expenses is the primary
means of developing resources to put towards goals like retirement, housing,
education and travel.
3.
It takes knowledge of knowing where you’re going
and if you’re on track to get there.
That’s called feedback. You need
a mechanism to keep you informed of your progress and to alert you to altering
your actions to stay on track or ahead of schedule.
Now what are the most frequent obstacles we see that prevent
goal achievement?
1.
Procrastination.
Lower priorities take over disposable income and not enough resources
are directed to higher priority, but longer-term goals. Parties, video games, you name it. In our
society it’s easy to become diverted by slick marketing, peer pressure, and
poor habits.
2.
Lack of resources. Decisions that affect expenses whether they are
day-to-day living expense decisions or long term debt decisions like student loans
lead to an inability to save adequately for long term financial goals.
3.
No goals in the first place. We call this the “seat of the pants”
plan. Without a roadmap any highway will
take you there. The majority of baby
boomers might fit into this category.
For most of them it’s too late and they are going to work many more
years and retire at a much lower standard of living than they otherwise might
of because they never planned ahead.
So what can we take away from this discussion?
1.
It’s never too late to plan although the longer
you wait the harder it is.
2.
It takes discipline and a denial of other
counterproductive opportunities.
3.
It takes a feedback mechanism, including
coaching in some cases, to stay on track and know when to hold ‘em and when to
fold them (thanks to Kenny Rogers).
As this year comes to an end. We want you to be thinking of goals and what
you will be doing next year to achieve them.
Good Luck.
Friday, November 23, 2012
Why I Fired My Bank
Seems like a catchy title doesn’t it? Well let’s see if you think I did the right
thing by the time you get to the end of my story.
My personal bank is USAA Federal Savings Bank. This story is
not about them. I love USAA’s one and
only San Antonio, Texas branch which I have never visited, but they always seem
to be the top rated bank in the United States.
I know why. Whenever I have a
question, need, or problem, I just pick up the phone or email them and ….BINGO,
I get a resolution.
Several years ago USAA started letting us drop our deposits
off at the local UPS store. Then they
let us scan checks at home and deposit them over the internet. Then came their iPhone app and I was in
heaven. Wish I could do this with my
business account.
Now I run a small business and USAA doesn’t have business
accounts. I asked the owner of the local
UPS store where I should open my new business account ten years ago. He pointed me to the local bank just down the
street. Nice manager, friendly staff and
good hours especially for drive in deposits.
Several years later our local bank got bought out by the
regional bank from New York State. Not
much changed except the manager got promoted and the teller staff retired or
moved on. Things seemed to be working ok
but going to the bank every day to make deposits became a chore for my
assistant or my wife, but it was usually either done on the way home or during
errand time at the beginning or ending of the work day.
A couple of years ago the big bank (P**) bought out the
regional bank. You know where I’m going, don’t you? More staff turnover. Everyone was a part timer
or so it seemed. They all wished me a nice day, but when anything went wrong I
had to find it, no one ever called to tell me there might be a problem.
Now banks make a lot of money on the deposit float. I should know, I’ve worked for two of them.
Our business has a nice five figure float where we don’t make a dime, but P**
bank does.
Last year I noticed that the big bank was letting people
make deposits with their iPhone but they had a limit. We have five offices around the country and
really enjoy making deposits on the iPhone since we travel for business. I
found out the monthly limit was very low for our kind of business and for our
average deposit. So I went in the see the branch manager - the new branch
manager. I observed they had cut back the lobby hours and the drive in
hours. No early or late drive in
business at all. (Our local grocery
story bank branch is open seven days a week!)
I explained to the new manager my needs. He listened, but it
was obvious he had no power to amend the low limits even though our float was
ten to fifteen times larger than any conceivable check we might deposit and
then bounce. We asked him to elevate the
issue and have P** make an exception. A
week later the “business banker” called.
He listened to my story. He said
couldn’t change anything, but would call my first branch manager (from 10 years
ago) who was now in some elevated position in the bank and address the issue
with her.
A week or so later my voice mail message told me sorry, no
change in their limits. Guess how I felt? Guess what I did? Right, I went to Google “business banks that
let their customers bank remotely and use their smartphones to make deposits”.
BINGO. EverBank is now our bank. The monthly limit for
smartphone deposits is 2.5 times our normal amount of deposits. FedEx delivers
the paperwork the next day. New checks
come in a week along with the debit card.
They call to see how we’re doing.
A month later they call again to check on us.
We are winding down our relationship (sic?) with P**. Somehow the auto payment for the Amex bill
didn’t get changed in time so we are overdrawn.
Does the big bank call, email, text us to let us know they’re charging
us $25 for the overdraft and $7 a day for a beginning $141 negative balance?
You can guess the answer.
Today I paid the big bank $231 in cash and they said they
would close the account in a few days.
Can’t even close an account on the same day!! Well, goodbye big bank. We admit we should have done this sooner, but
it’s a pain to switch banks.
Sure do miss all the old employees from the local bank. In ten
years, they were the only ones who seemed to really care about our business.
Conclusion: Every three years or so look around and
comparison shop your vendors. There are companies out there that really want to
listen to your needs and will do what it takes to exceed your expectations.
Saturday, November 3, 2012
It's Never Too Late: But Get Going Now!
We are in the goal business. Helping people define, refine
and achieve their financial goals.
What does it take to achieve and surpass financial goals?
1.
It takes willpower. Remember the “protestant work ethic” of
delayed gratification? Starting early
and staying with a plan is a key component to attaining financial success.
2.
It takes resources. Income in excess of expenses is the primary
means of developing resources to put towards goals like retirement, housing,
education and travel.
3.
It takes knowledge of knowing where you’re going
and if you’re on track to get there.
That’s called feedback. You need
a mechanism to keep you informed of your progress and to alert you to altering
your actions to stay on track or ahead of schedule.
Now what are the most frequent obstacles we see that prevent
goal achievement?
1.
Procrastination.
Lower priorities take over disposable income and not enough resources
are directed to higher priority, but longer-term goals. Parties, video games, you name it. In our
society it’s easy to become diverted by slick marketing, peer pressure, and
poor habits.
2.
Lack of resources. Decisions that affect expenses whether they are
day-to-day living expense decisions or long term debt decisions like student loans
lead to an inability to save adequately for long term financial goals.
3.
No goals in the first place. We call this the “seat of the pants”
plan. Without a roadmap any highway will
take you there. The majority of baby
boomers might fit into this category.
For most of them it’s too late and they are going to work many more
years and retire at a much lower standard of living than they otherwise might
of because they never planned ahead.
So what can we take away from this discussion?
1.
It’s never too late to plan although the longer
you wait the harder it is.
2.
It takes discipline and a denial of other
counterproductive opportunities.
3.
It takes a feedback mechanism, including
coaching in some cases, to stay on track and know when to hold ‘em and when to
fold them (thanks to Kenny Rogers).
As this year comes to an end. We want you to be thinking of goals and what
you will be doing next year to achieve them.
Good Luck.
Thursday, October 4, 2012
Scary time this year
We are now in October, with nine months of the year behind
us. That’s a scary thought even though
Halloween isn’t here yet. The good news
first:
First quarter 2012 saw the US, Europe and Emerging Markets
up big time: +13%/+11%/+14%.
Second quarter 2012 saw them down: US -3%/ Europe -7%/ Emerg Mkts -9%
Third quarter 2012 was good: US +6%/ Europe +9%/ Emerg Mkts +8%
Cumulative Year to Date: US +16%/ Europe +16%/ Emerg Mkts +12%
Naturally, looking in the rear view mirror is the easy part
and things are looking good. But that’s
only stock market investments. Bonds are at low historic rates. Since we
believe the stock market is forward looking, we have no idea where it will end
up on December 31st. The
signals are mixed. Staying fully
invested is still our thought for right now.
However, that’s always been our thought.
We had a do-nothing congress this year so we remain in tax
limbo until very late this year or early next year depending on how far the can
is kicked down the road.
Capital Gains Fever
For many taxpayers it will make sense to harvest capital
gains in 2012 to take advantage of current lower rates. If we haven’t helped you before then you
might not be familiar with this “harvest” term or technique of taking advantage
of lower tax rates or losses to offset gains.
On the other hand, if you will be passing on assets and are in the 15%
tax bracket or lower, then you might want to hold on for the stepped-up basis
upon death. We are sorry it’s so
complicated, but we will point our finger at those 535 down in Washington, DC.
Medicare Surtax: 3.8%
Now we all have to understand where we will be on our 2013
tax return when it comes to Modified Adjusted Gross Income (MAGI) and Net
Investment Income (NII). For couples
with over $250,000 in income filing jointly; married filing separately,
$125,000; and all other taxpayers, $200,000; we will need to be open to
strategies to reduce or eliminate the impact of this additional tax on certain
income above these levels.
Other Tax Strategies
for 2012
If we need to see more income this year we can explore
converting some or all of an IRA to a Roth IRA.
The conversion will be taxed at today’s lower rates if we believe rates
go up in 2013. There also might be an
opportunity to unwind this conversion up until fall of 2013. We can also consider exercising non-qualified
stock options if 2012 if we’re lucky enough to have some.
Don’t forget about Estate
Taxes
The rules are set to lower the federal limits of individual
exemption (and some states that are tied to the federal number) from the
current $5,120,000 to $1,000,000 come January 1st, 2013 unless the
you-know-who’s do something. Fat chance. The President wants a $3,500,000 individual
limit and the opposition party wants to eliminate the tax altogether. Who knows
when and where we will end up.
OK. That was the bad news.
Good news, bad news, and now great news: Jennifer Ventola has joined MainStreet as our new
Client Services Manager. You’ll be hearing a lot more from her if you’re an ongoing MainStreet client.
We sincerely thank you for using our services in the past. If you are an ongoing client we encourage you to get your statements and questionnaires to us in a timely manner
now that they are starting to show up in your mailbox or email inbox. Scary means we will be working harder for you than ever before.
All the best, Jim and Anna info@adviceonly.net goes to both of us
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